USA Bank gets new owner after FDIC seizure

Richard Lee, Staff Writer

Published
10:43 am EDT, Tuesday, July 13, 2010

The new owner of failed USA Bank of Port Chester, N.Y., whose chairman was Greenwich resident Fred Decaro III, has promised that depositors will not experience any disruption of service and can expect to see an expansion of operations.

New Century Bank of Phoenixville, Pa., which does business as Customers 1st Bank, took over most of the assets and deposits of USA Bank on Friday after it was seized by the Federal Deposit Insurance Corp.

USA Bank last year lost $13.4 million as the housing market tumbled, forcing many of its construction and development loans into default. The bank had $6.4 million in bad loan charge-offs in 2009, draining its reserves. USA Bank finished last year with equity capital of $5.3 million -- about 2.4 percent of the bank's total year-end assets of $221.5 million -- well below the cushion the FDIC requires of solvent banks.

"With the acquisition, USA Bank becomes part of a safe, secure and successful bank," said Jay Sidhu, chairman and chief executive officer of Customers 1st Bank.

The FDIC takeover came despite USA Bank's April 29 announcement that it had entered into a stock purchase agreement with Westchester Working Group LLC that would provide the bank with a minimum of $15 million of additional capital.

"The bank was heavily involved in acquisitions, development and construction lending -- specifically for condominiums and residential development. Reckless lending practices can lead to a deterioration of a portfolio," he said. "The bank was chartered in late 2005, and in October 2007 they were placed under a cease-and-desist order (by the FDIC and New York State Banking Department). They were aggressive in their lending right from the start."

Noting that the new bank has retained its USA Bank name, Eric Raines, a senior ombudsman specialist for the FDIC, said it opened under its new management Saturday and the FDIC continues to examine the former leadership's actions while it controlled the bank.

"The FDIC is not accusing anyone of fraudulent activity," he said.

Raines attributed the bank's demise to overzealous lending practices, combined with a dramatic downturn in the housing market.

The bank's financial report for the quarter ended September 2009 revealed the dire situation that it faced.

It reported a net loss of $4.1 million for the period, dramatically more than the net loss of $118,000 for the same period in 2008. For the first nine months of 2009, the bank registered a net loss of $8.9 million, compared with $1.2 million for the same period in 2008.

Ronald Gentile, president and chief executive officer of USA Bank, blamed the decline on the economic downturn.

"The increase in non-performing loans is a serious concern, and we have hired an experienced, professional workout specialist to assist us in trying to restore these loans to a performing basis," he said in a statement. "The bank's allowance for loan losses as a percentage of loans has increased from 1.24 percent, or $1,862,00 at Sept. 30, 2008, to 4.16 percent, or $7,154,000 at Sept. 30, 2009."

With more conservative management strategy by Customers 1st, the Port Chester bank's fortunes will turn, said Sidhu, adding that he was impressed by its assets of nearly $200 million and $189.9 million in deposits.

"USA Bank presented a good opportunity," said Sidhu, who has compiled a list of about 20 banks in financial trouble that are prospects for acquisition.

Sidhu plans to expand the bank's operations into lucrative Fairfield and Westchester, N.Y., counties, as well as New Jersey.

"We'd like to be in Rye (N.Y.), Greenwich and Stamford," he said, adding that Customer 1st Bank is reviewing how to address USA Bank's 25 employees. "We'll do our best to retain as many as we can."

Sidhu, who as CEO of Sovereign Bank turned it into one of the Northeast's largest financial institutions, has the experience to revive the fortunes of USA Bank, said John Carusone, president of the Bank Analysis Center in Hartford, and make it a player in this region.

"He has a record of amassing significant banking franchises by opportunistic acquisition," he said. "New Century's platform is ideally positioned for him to acquire distressed banks."